It’s a looming decision that has sparked global headlines, turned the heads of financial analysts and kept the bitcoin world on the edge of its proverbial seat.
This refers, of course, to the bitcoin exchange-traded fund (ETF) proposed by investors Cameron and Tyler Winklevoss. That ETF – first proposed in mid-2013 and subject to a range of public comments and exchange switches – is effectively waiting in the wings for a decision by the US Securities and Exchange Commission, which is weighing a rule change proposal that would clear its passage.
While most in the digital currency space likely know the ins-and-outs of the ETF story, those not so familiar with it might not understand all the details. In this feature, CoinDesk explores the journey – from start to near-finish – of the proposed bitcoin ETF.
In the beginning
Before getting into the story of the bitcoin ETF’s early days, it might help to understand who Tyler and Cameron Winklevoss are exactly.
Both graduates from Harvard University, the two took part in the 2008 Beijing Olympics in the men’s rowing competition, where they advanced to the finals and ultimately scored sixth place, according to ESPN.
Another major event in their pre-bitcoin days was the now-infamous legal battle with Facebook founder Mark Zuckerberg, documented in the 2010 film The Social Network. While at Harvard, the Winklevosses conceived a social network, ultimately dubbed ConnectU, for which they began working with Zuckerberg. Yet Zuckerberg soon opened the well-known Facebook platform, sparking the legal fight that resulted in a $65m settlement.
Yet it was their bet on bitcoin – which they revealed in early 2013 – that set them on the course toward this week’s SEC decision. Amassing a considerable amount of coins, the two perhaps represented an early voice of confidence in the digital currency among mainstream investors.
Several months later, their first S-1 was filed with the SEC, formally registering their intention to launch an ETF tied to bitcoin.
Road to the ETF
It was in that initial filing that the fundamental argument for the ETF’s existence was first put forward. Simply put, the product was pitched as a way for more seasoned investors to gain exposure to bitcoin without having to purchase and hold the digital currency.
As explained in the filing:
“The investment objective of the Trust is for the Shares to reflect the performance of the Blended Bitcoin Price of Bitcoins, less the expenses of the Trust’s operations. The Shares are designed for investors seeking a cost-effective and convenient means to gain exposure to Bitcoins with minimal credit risk.”
Then, like many other things in the bitcoin space, the collapse of Japan-based bitcoin exchange Mt Gox triggered a small but meaningful change in how the ETF would be constructed. Mt Gox was once the world’s most voluminous bitcoin exchange before it fell apart amid accusations of fraud, leading to the eventual arrest of its CEO last year.
In the aftermath of the Gox failure, an amendment was filed to the ETF’s S-1 which changed the price index which the ETF would use to determine the price of a bitcoin. The proprietary Winkdex was adopted, replacing the old model based on weighted average prices of several bitcoin exchanges.
The duo confirmed, in a follow-up filing in 2014, their initial intention to list the ETF on the NASDAQ OMX exchange. The ticker symbol “COIN” – a tip of the hat to the digital currency – was first disclosed at this time.
That filing also added new risk factors related to the ETF, including the potential for a so-called 51% mining attack on the bitcoin network.
Watch and wait
That submission would prove to be yet another leg in a long waiting game for the Winklevoss-backed ETF. During that time, the Winklevosses were approved for a bank charter, setting the stage for the launch of Gemini, their digital currency exchange.
Last year, in a summer defined by the Bitfinex exchange hack and the collapse of the DAO, the ethereum-based project funding vehicle, the calculus for the Winklevoss ETF shifted significantly.
A new filing in June revealed a plan to debut the product on the Bats BZX Exchange. The scope of the offering also expanded, from an initial $20m to $65m. That request led to further delays last fall, triggering a call from the SEC in October for more public comment, seeking more input from both stakeholders and critics of the idea.
The SEC went to further delay the decision process in January of this year, setting the stage for this week’s deadline.
Since then, however, the scope of the proposed ETF offering has expanded further, growing from $65m to $100m, while also lowering the maximum offering per share price from from $65 to $10. A February filing detailing the changes also included language about the risks of a network hard fork and contingency plans should two blockchains sharing bitcoin’s transaction history emerge.
The final countdown
Those developments take us to the present day, during which market observers, stakeholders, bitcoin enthusiasts and potential investors are watching the skies for the SEC’s word.
That determination is set to be revealed by tomorrow, according to a source with knowledge of the agency’s work, yet at press time, the SEC has kept mum about its decision.
In the meantime, bitcoin traders are gearing up for a possible increase in volume – and volatility – when markets react one way or another, and at least one hedge fund that invests in bitcoin has moved to reduce its exposure to the market.
But until the decision is made, all eyes are on the SEC.